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Concord Coalition Says CBO Numbers Show Why Lawmakers Should Look To The Future, Not In The Rear View Mirror

Press Release

Thursday, August 23, 2007

WASHINGTON
-- With the Congressional Budget
Office (CBO) projecting a third consecutive annual decline in the deficit, to
$158 billion this year, The Concord Coalition today urged lawmakers not to take
undue satisfaction from the short-term improvement but to focus instead on the
nation's unsustainable long-term fiscal outlook.

"Today's CBO report is only good news if you are looking in
the rear view mirror. Looking ahead, the same problems remain as large as ever
and they are getting closer. Moreover, even the short-term outlook is not as
promising as it appears on the surface. Strict adherence to the new
Congressional pay-as-you-go rules and a great deal of discipline on
appropriations bills will be necessary to make these projections a reality, "
said Concord Coalition Executive Director Robert L. Bixby.

The Concord Coalition pointed out that deficit reduction reflected in CBO's new
projections is the result of technical and economic re-estimates, things over
which Congress has no control. Legislative actions, which Congress does control,
have actually increased the deficit. For example, the 2007 deficit was improved
by $48 billion in economic and technical changes, which more than offset the $29
billion of legislative changes that increased the deficit.

"Politicians in Washington and on the campaign trail have yet to confront the
difficult trade-offs that must be made. Even if all their proposals comply with
pay-as-you-go rules, which is a very big ‘if', that would not change the
unsustainable course we are on," said Bixby.

The new CBO report
shows a deceptively benign outlook over the next decade. This is not due to any
fundamental change in the major cost drivers of the budget -- health care and
retirement programs. On the contrary, between 2007 and 2017 the cost of Social
Security, Medicare, and Medicaid will increase by 22 percent -- from 8.8 to 10.7
percent of GDP. As a result, these three programs, which now consume 42 percent
of the budget, will consume 51 percent by 2017.

The reason for the baseline
improvement is that it assumes policymakers will hold discretionary programs,
including defense, to just 2.5 percent growth annually --
as opposed to a 5.9 percent annual average rate from 1995 through 2005 --
and that they will not enact new legislation to extend any expiring tax cuts or
provide relief from the Alternative Minimum Tax (AMT). These assumptions are
consistent with budget scoring rules, but inconsistent with legislative actions
of recent years.

The Concord Coalition released its
alternative baseline scenario using estimates contained in the CBO
report. It assumes:

Appropriations rise at the same rate as economic
growth (GDP), not inflation

Funding for
operations in Iraq and Afghanistan will slow gradually

All expiring tax provisions are made permanent

Relief from the
AMT is extended

These changes
turn the official 10-year baseline deficit of $343 billion into a deficit of
$5.2 trillion.
Instead of a $62 billion surplus in 2012, there would be a deficit of $430
billion. By 2017, the baseline surplus of $109 billion becomes a deficit of $801
billion.

"Despite many twists and turns in the official baseline
projections over the past few years, our alternative scenario has consistently
shown a 10-year deficit of roughly $5 trillion. And as we point out on our
Fiscal Wake-Up Tour, things get much worse beyond the 10-year window," said
Bixby.

"The most
important point to take from this report is that current fiscal policy remains
unsustainable. Congress and the President should heed the clear warning signs in
CBO's report -- specifically that while much of the recent revenue surge may
prove to be temporary, spending pressures are certain to ratchet up
substantially by the end of the decade as the baby boomers begin to retire,"
Bixby said.

Every year the trustees of Social Security and Medicare issue detailed reports on the financial status of these programs. While the trustees’ reports consistently warn that both programs face serious shortfalls, the urgency of this warning is often undercut by undue attention to the years in which the Social Security trust funds and the Medicare Hospital Insurance (HI) trust fund are projected to become insolvent.

Health care programs are the largest and fastest growing in the federal budget. These programs include Medicare (providing health insurance for older Americans), Medicaid (providing health insurance for lower-income Americans), the Children’s Health Insurance Program, and subsidies for individuals to purchase private health insurance under the Affordable Care Act. Currently they comprise almost 30 cents out of every dollar spent by the federal government.